Depending on the type of home loan you have and the down payment you made, you might be paying for mortgage insurance as MIP or PMI.
In either case, mortgage insurance is a significant ongoing expense that can eat into your finances. If you are able to stop paying for mortgage insurance, you can take all the money you save each month and apply it toward your principal to pay your mortgage off more quickly.
You could also simply save it or use it to pay off other bills (including, perhaps, high-interest debt). But how do you get PMI or MIP to go away? Let’s go over some of your options.
3 Tips To Drop Mortgage Insurance
- Keep paying off your home loan. One way to get rid of mortgage insurance is just to keep paying off your loan until you have achieved the minimum required equity or LTV ratio to do so. Let’s say you have PMI. The reason you would have PMI is because you took out a conventional loan, but you did not put down 20% or more when you bought your house. Once you have paid off enough that you are at a 78% LTV ratio, then the PMI will go away, as is legally mandated. But you may not have to wait that long. If you own 20% or more equity in your home, you can contact your lender and ask if they are willing to get rid of the PMI. They might agree to do so. They are most likely to honor this request if you are always timely with your payments. It may be worth it to get your home appraised before you present your request if home values in your area have been dropping. That way, the lender will not be able to easily question whether you really do own 20% or more equity. If you are paying for MIP, on the other hand, that is because you have an FHA mortgage. MIP works a bit differently from PMI. MIP may expire on some FHA loans, with the rules for expiration depending on the date on which your mortgage originated as well as your loan term and down payment amount. In some cases, it is not possible to cancel MIP, which brings us to the next idea: refinancing your mortgage.
- Refinance your mortgage. If you have a situation where there is no way to ever get rid of your mortgage insurance with your existing type of home loan, you could refinance to a different type of mortgage. Doing so may allow you to drop the requirement. Even if that is not your situation, refinancing may still be a good option in some scenarios. Perhaps you will have an opportunity to both stop paying for mortgage insurance and decrease your interest rate.
- Take advantage of home appreciation. Previously, we mentioned that getting an appraisal may be useful if you are worried your lender will think your home value has dropped. But if you think that your home value has actually gone up, that could be a perfect example of a situation where a home appraisal might help you get away from your mortgage insurance payments. A significant value increase in your home represents a gain for you. That gain can be considered alongside equity from your down payment, and then compared to the remaining principal on your loan. You will find that the appreciation will raise the percentage of your overall home equity. Sometimes, it might even raise it to the point where you can get rid of your mortgage insurance.
Find Out if You Can Cancel PMI or MIP
The sooner you are able to eliminate your mortgage insurance, the sooner you can start saving money. If you suspect that you can cancel your mortgage insurance, it is thus in your best interest to find out right away. To schedule your consultation, please call First Residential Mortgage now at (540) 838-5868.